Conscious Entrepreneurship Foundation
Coins for Causes
To empower marginalized communities.
To help communities that are outside the mainstream advance mutual aid through intra-community trade using decentralized blockchain management systems similar to Bitcoin.
original version: 6 June 2014
this draft: 13 July 2014
Satoshi Nakamoto’s 2008 “Bitcoin:A Peer-to-Peer Electronic Cash System” and the release of the first Bitcoin software in 2009 made possible, for the first time ever, purely peer-to-peer payments that pass directly between two parties anywhere in the world without going through a financial institution or relying on a trusted third party. Coins for Causes uses this same technology to issue community currency with soft or implicit backing that should maintain a reasonably stable value and create an incentive for the advancement of intra-community trade and the development of goods and services within the community for global export.
Traditionally, a community currency—also known as alternative currency, auxiliary currency,complementary currency, local currency, private currency, or regional currency—is a medium of exchange that is intended to trade exclusively within a particular community, and is not issued or recognized by a national government or monetary authority. Examples are described in the Wikipedia article, “Local Currency.”
In addition to the benefits of a conventional community currency that circulates as tokens, paper notes, or ledger entries, a community currency issued using a decentralized blockchain management system (community coin), similar to Bitcoin (XɃT), offers the possibility of circulating in the world at large while retaining its uniqueness and driving benefits to the members of the community on whose behalf it is issued.
The defining characteristics of communities participating in Coins for Causes fall into the same three general categories used to justify the establishment of a credit union. The core users should have some common bond, whether geographical, professional, or social. However, outsiders should not be prevented from holding or speculating with the community coin, especially if by doing so they help promote its existence and support its value.
Although the examples below focus on geographical association—as this is the most concrete and easiest to visualize, and the one for which partner organizations should be the easiest to recruit—the same rationale applies to professional and social communities. Whatever the common bond, members of communities, for whom cooperative partner organizations do not exist, should see this as an entrepreneurial incentive to establish those partner organizations; in particular, credit unions, fraternal associations, and businesses to accept the community coin.
This discussion assumes that the reader is familiar with virtual currency in general, and Bitcoin in particular. Those who are not can find links to online resources in the Bitcoin Resources section at the end of this proposal.
Let us begin by imagining a section of a major city that is economically disadvantaged. Crime rates, unemployment, etc. are well above the national average, and educational achievement, household income, etc. are well below the national average.
A very large proportion of the population does not have bank accounts. When they work, they typically are paid in cash. When they are paid by check, many residents cash their checks at local check cashing windows in pawnshops and convenience stores that charge high fees for this service. Many residents also pay their electricity, water, and telephone bills at these same shops, again for relatively high fees.
A substantial proportion of many residents’ income goes unreported. For many, their primary official source of income is government welfare paid directly to debit cards that they use in local grocery stores to buy food. However, local shopping opportunities are very limited, as most mainstream merchants avoid this section of the city.
A surprisingly large proportion of the community residents own smartphones. Most of those who do not, own feature phones from which they can send SMS messages. These are the minimum physical infrastructure needed for a Coins for Causes rollout.
A community currency helps to bind economic activity within a community similar to the way that a national currency helps to bind economic activity within a nation-state or economic bloc of countries. It provides a demarcation between Inside and Outside. For example, one of the major driving forces behind the establishment of the euro in 1999—rather than adopting the US dollar (USD) or returning to the gold standard—was the desire to unify the economies of European Union member states into a coherent super-economy with its own unique identity.
A community currency can serve as a focal point to help a community’s members think of other community members as Us, leading them to pool resources within the community and to prefer to transact among each other—all other things being more or less equal when economically viable—rather than with merchants outside of the community. This, in turn, can lead to the creation of wealth and the building of capital within the community through the establishment of businesses specifically to supply goods and services to community members.
This is different from self-sufficiency, which involves isolating a community from the outside world. The point of a Coins for Causes community coin (CCoin) is to help community members to prefer goods and services supplied by community members, when it makes economic and social activist sense, in order to provide an incentive for individual community members to cooperate for the common good of all community members.
With concentrations of human, financial, and technological capital,community members can produce goods and services for sale outside the community, attracting capital into the community, leading to a virtuous cycle of increasing capital accumulation and export sales.
In the case of a disadvantaged section of a major city, this could include music and video, ethnic restaurants and entertainment venues,graphic design, light manufacture, software development, etc. In a geographically dispersed social community, this likewise could take the form of services, goods related to the social community’s common bond, conference registrations, etc.
The key point here is that the CCoin serves as an economic ‘picket fence’ that marks the boundary between the community and the outside, and is easily crossed when it makes sense to do so. The drive toward resource pooling, capital building, and wealth accumulation must come from withinthe community, once the boundary has been made more visible.
The rollout of a CCoin requires the cooperation of several partners: a Core Sub-Community to champion the CCoin, perhaps a church congregation, chamber of commerce,fraternal lodge, or other tight-knit group within the community; an Endowment Manager who acts as a market maker; a financial institution, ideally a Credit Union that serves that community; and Merchants within the community to accept the CCoin.
The members of the Core Sub-Community should promote the benefits of the CCoin to Merchants and members of the community, and they should use the CCoin as ostentatiously as possible, taking every opportunity to talk with media outlets and thought leaders within the community.
The Credit Union‘s executives’ role is strictly passive. It is simply to allow an Endowment Manager to open an account to hold money raised on behalf of the community through donations and grants, and to make the balance of that account available to the public.
The money in the Credit Union account is to function de facto as backing for the CCoin,by enabling the Endowment Manager to sell any CCoin that it holds to Credit Union members and to buy the CCoin from Credit Union members at some published price. The Endowment Manager is to make a market in this way for Credit Union members only. If someone who is not a Credit Union member—within the community or in the outside world at large—wants to buy or sell CCoin, then that person must negotiate with CCoin holders directly, or find a third-party exchange that trades in the CCoin. Also, if no one within the community is ready, willing, and able to manage the endowment,an outside adviser might be needed. However, this should be treated as a volunteer project, and not as a lucrative consulting opportunity.
It must be stressed here that the Endowment Manager is not the CCoin issuer. As is the case with XɃT, the issuer is the system itself that consists of many copies of apiece of software that run on users’ computers and collectively manage a distributed—and, ideally, decentralized—blockchain (see References for technical explanations). Granted, the Endowment Manager might mine CCoins, but this should be on behalf of the community, for sale to community members through the endowment fund, and with no advantage over any other miners in the system.
The role of community Merchants is accept the CCoin for goods and services at some fixed, published rate, and perhaps even to offer discounts to CCoin customers and clients; and to pay as many employees and vendors as possible with the CCoin, in order to keep it in circulation. When selling goods and services to customers and clients outside of the community, especially internationally, the Merchants should express a strong preference for being paid in CCoin. This should increase demand for the CCoin in the world at large, thereby providing additional support for its market value.
The illustration below depicts the basic structure of the CCoin economy. The Endowment Manager fundraises for donations, applies for grants, and resells any CCoins in its possession, and holds the proceeds in an account with a Credit Union that serves the community on whose behalf the CCoin is issued. Community members who hold CCoins use them to buy goods and services from community Merchants. Though not depicted here, the Merchants, in turn, pay as many employees and vendors as possible with CCoins, in order to keep the CCoins in circulation for as long as possible, safe in the knowledge that anyone who is a Credit Union member can convert the CCoin into national currency—’real’ money—at any time.
To support the CCoin’s value, the Endowment Manager stands ready to buy CCoins from and sell CCoins to Credit Union members at a price equal to the total value in the endowment account divided by the ultimate number of CCoin units that will circulate. For example, if the Endowment Manager secured a community grant of $100,000 and the CCoin circulation were capped at 10 million units, the Endowment Manager would set the CCoin price at 1¢ per unit, giving each CCoin the equivalent purchasing power of a penny. If the Endowment Manager raised more for the endowment fund, then each CCoin should grow in value proportionately.
Note that the Endowment Manager will transact in this way onlywith Credit Union members,who must be members of the community in order to qualify for Credit Union membership. For the CCoin to provide an incentive for community members to cooperate economically over the long run, selling CCoins to the Endowment Manager should be discouraged through social pressure within the community, but the Endowment Manager should perform its market making role efficiently and openly at all timesand focus its efforts on reselling any CCoins in its possession, rather than create barriers to buying them from community members.
The idea here is to focus on the carrot rather than the stick, on the expectation that, if CCoin holders within the community know that exiting the system is easy,then the need to do so should be less pressing in the short run. For example, if one held $100 worth of CCoins, and one did not need $100 immediately— andone knew that one could sell the CCoins on a moment’s notice at a known price—then one might be indifferent between holding the CCoins for the time being and converting them to dollars now.
Because the ultimate quantity of CCoins is to be capped, ifCCoin users work with the Endowment Manager tofundraise, apply for grants, and promote the sale of CCoins outside the community, then long-term holders should see the value of their CCoins rise in proportion to the growth of the endowment fund. While some individual holders might treat CCoins like passive investments, if all holders did so the velocity of circulation—and thus the value—would fall.For this reason, CCoins should be promoted as a medium of exchange and notas an investment.
In order to drive global demand for CCoin, it should be ‘mined’, as XɃT is mined, by anyone anywhere in the world who wants to do so. To encourage this, the Endowment Manager should arrange for CCoins to be traded on at least one Virtual Currency Exchange that carries XɃT and virtual currencies other than XɃT (altcoins).
Entrepreneurial community members who decide to bridge the gap between those outside the community and the Endowment Manager by providing CCoin exchange services should be encouraged to do so, within statutory and regulatory rules. The point of the CCoin is to create incentives for the creation of valuable goods and services within the community.
Unlike the case with most altcoins, each community’s CCoin Endowment Manager will act as a market maker to support the CCoin’s initial value. However, this market maker will transact directly only with community members who hold accounts at the Credit Union where the Endowment Manager holds the community’s CCoin endowment account.
CCoin miners outside of the community who prefer not to hold the CCoins that they mine will have to trade their CCoins for XɃT or some other altcoin on a Virtual Currency Exchange (as per the illustration above), use them to buy goods and services from community Merchants, or sell them to community members (see illustration below), who in turn can use them to buy goods and services from community Merchants or sell them to the Endowment Manager.
In this way, the Endowment Manager’s role of market maker provides a means by which anyone in the world who transacts with CCoins can form reasonably stable expectations of their value, but only community members have access to this market maker directly.
In the worst-case scenario,community members could reject the CCoin and sell it to the Endowment Manager as quickly as it is mined and transferred to a Credit Union member. This would leave the Endowment Manager with an empty Credit Union account and a hoard of potentially worthless CCoin. In this case, the experiment would have failed and the endowment funds would have been dissipated into the community.
In the worst-case scenario, some of the community members would enjoy a fleeting windfall, and the community would be back at Square One. This is why enlisting the aid of a Core Sub-Community is critical before the initial CCoin rollout.
A CCoin helps to create a kind of economic ‘picket fence’ that marks the boundary between the community and the outside, reminding users to prefer to buy from those who have some tie to the community as much as possible. In order to attract money into the community and concentrate it there,community members should sell goods and services bothwithin and outside the community, and create incentives for buyers to transact using the CCoin.
In order to avoid creating incentives to send money out of the community, Merchants must provide goods and services that are demanded within the community, including food, entertainment, professional services, etc.
In the early stages of a CCoin rollout, the units in circulation derive their initial value from an endowment consisting of the proceeds of donations and grants. As described above, if the initial endowment consists of a $100,000grant paid into a community Credit Union account, and the total number of CCoin units is capped at 10 million, then the CCoin is expected to have an initial market value of approximately 1¢. When the Endowment Manager buys CCoin from community members, it offers the CCoin for sale back into the community, in order to keep the value of the endowment fund more or less constant.
A CCoin issued on behalf of a professional or social community, rather than a geographical community, can substitute—for the Credit Union/Endowment Manager combination described above—a wealthy benefactor or group of activists in the role of market maker. The critical point is that the market maker will transact directly only with members of the community, and that outsiders will have to negotiate with community members on an ad hocbasis or via an altcoin exchange.
CCoin Supply & Demand : Day One
In the illustration above, the price floor (E/Q*) is the number of dollars—or whatever currency serves as legal tender in the community—in the endowment fund (E) divided by the total cap (Q*) on the number of CCoin units that will circulate. In the examples earlier, this was $100,000/10 million CCoins = 1¢ per CCoin. The supply curve is vertical,because Q* is fixed before the CCoin is issued. The demand curve is kinked, because the price should never fall below 1¢ per CCoin, given the presence of the market maker.
A Core Sub-Community—a chamber of commerce, church, business incubator, fraternal lodge, or other influential group within the community—is needed to promote the benefits of the CCoin to Merchants and other members of the community. The Core Sub-Community should work with community members to promote the CCoin, discover innovative uses for the CCoin, develop goods and services for sale both within and outside of the community,and eventually embrace the CCoin as ‘our’ medium of exchange and store of value. (Most likely, the unit of account and measure of value will continue to be the legal tender of the larger national economy.)
If the CCoin catches on,especially if community merchants develop markets outside of the community, this can lead to an increase in demand for the CCoin and cause its market value (P’)to rise above the floor set by the Endowment Manager. Any such premium that emerges can be used as a measure of the community’s economic development.
CCoin Supply & Demand : Over Time
Because of the limited CCoin supply—fixed in the software before it is issued—if more and more community Merchants embrace it and find bigger and bigger markets that use it as a medium of exchange, then the value of goods and services offered in exchange for CCoin could rise above 1¢ for every CCoin. When this happens, no one would sell CCoins to the Endowment Manager at the fixed floor price, since they could sell them to someone else for more. Because no one sells CCoins to the Endowment Manager, it never has any to sell at 1¢, and people must pay the higher market price for them. At this point, the CCoin would have its wheels off the ground and be able to fly on its own.
When this happens, the endowment fund can be left to accrue interest in the Credit Union, and maybe even be supplemented with ongoing fundraising and grants. However,the CCoin should derive its value from market expectations of future sales by community Merchants, rather than from the reserves held in the endowment fund.
If community members expect that the CCoin value will grow over time, this could create an incentive for them to budget for savings, rather than immediate consumption beyond necessities and a comfortable lifestyle. This, in turn, should put downward pressure on prevailing interest rates within the community, enabling the expansion of credit for business and real estate development.
After the CCoin’s market value has stayed above the Endowment Manager’s floor for some reasonably long amount of time—e.g., one year—the Endowment Manager, CCoin users, and donors can discuss putting the endowment fund to some community use, rather than leave it sitting idle in the Credit Union. If an endowment agreement exists, then the rules for calling this decision should be included in it.
A Coins for Causes community currency (CCoin) with soft or implicit backing, and built on the same technology used by Bitcoin and other virtual currencies, should maintain a reasonably stable value during its early rollout phase and create incentives for the advancement of intra-community trade and the development of goods and services within the community for global export. As the use of this CCoin catches on, its value should derive from the productivity of the community members on whose behalf it is issued, leading to positive side-effects including the accumulation of wealth within the community and the reduction of interest rates.
Rolling out a CCoin is relatively straightforward. Anyone interested in initiating this kind of project who is unfamiliar with any of the items below can turn to Conscious Entrepreneurship Foundation for guidance at ConsciousEntrepreneurship.org.
- Identify a community and a core sub-community within it to promote the CCoin. Nominate an endowment manager.
- Choose a name and a logo,register a catchy domain name, set up a website, and get up to speed on the current state of the art in the virtual currency ecosystem.(See Bitcoin Resources below.)
- Prepare a project plan and presentation (based on this document, if necessary). Identify a credit union that serves the community and is run by individuals who are willing to open an account for the CCoin’s endowment manager. If possible, have the credit union publish the balance of the CCoin account where members of the public can find it easily.
- Have a programmer fork the code of an existing open source virtual currency. Release PC wallets for Linux, Mac, and Windows, and smartphone wallets for Android and iOS. Offer an online wallet if and only if the programmer is actively involved with the project.
- Recruit merchants to accept the CCoin, and encourage them to promote it to their employees and vendors.
- Fundraise for donations to the endowment fund and prepare grant proposals for wealthy individual donors,community development foundations, and government agencies.
- Promote the CCoin to every information and news outlet possible that is involved with virtual currency, the support of this kind of community, or special interest news.
- Arrange to have the CCoin listed on at least one altcoin exchange.
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